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Wednesday, May 2, 2012

Canada may be secretly preparing to decouple from the USD

Almost exactly one year ago I wrote a piece on my old blog about Canada's economic situation. In it I concluded there were two possible outcomes in the medium term:

So Canada, we have a big decision ahead of us. Do we decouple the CAD from the USD, effectively cutting off trade with them, but returning our dollar to a reasonable value? Or do we keep the trade going by devaluing our own currency and thrusting 8% or more inflation on Canadian citizens. I'll be honest, neither option is without it's downfalls. We will not escape this crisis pain-free.

Originally it had appeared that we would be sticking with the USD and strengthening trade with them and the other western nations, however I now believe we have reversed our position.

In the introduction of my budget analysis I hinted at a possible "conflict of interest" that was developing, since then several other events have occured which for me confirms some of my original thoughts; the most notable of which is Flaherty's recent IMF rebuttal and today's speech. In his speech Harper said something very notable:

Prime Minister Stephen Harper marked the anniversary of his Conservative party’s first majority government by telling members of his caucus that Canada must align itself with the economic winners of the world to ensure continuing prosperity.

As I have previously explained, and which was confirmed; as long as the U.S. continues easing our interest-rates are held hostage if we are to depend on trade with the U.S. for revenue. Raising interest-rates will effectively price the U.S. out of the Canadian export market. Since it looks like the BRIC nations are going to move ahead with a similar plan - it then becomes a question of which is more valuable: revenue from the U.S.? or affordability for Canadians? If the BRIC's move away from a USD standard then the cost of products these nations produce will skyrocket in terms of USD. If the CAD is to compete with BRIC currencies then it cannot be tied to the USD or the same cost increases will hit us.

The world isn't too happy with the U.S. right now, they've grown tired of constant war and obvious lies. There is a global economic realignment happening and I don't think Canada is opting to go down with the USD ship. These nations we are aligning with however do not cherish democracy as we do. We will be a minority in this new alliance, and of this we should be wary.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

2 comments:

I agree we probably should escape the "all eggs in one basket" routine we've promoted for a century but I don't see any indications that we are taking the U.S. collapse/loss of hegemony seriously.

The Bank of Canada still holds nearly all reserves in U.S. dollars, we've not corrected the Mulroney mistake of selling all the gold, we've made no deals for direct currency swaps with the likes of China for settlements. A number of S.A. and African countries have made such currency swaps with China in recent years as has Australia. They are taking the end of the U.S. dollar as the reserve currency seriously ensuring trade won't collapse when the crisis comes.

I also don't see Canadians taking the risk seriously either, we've heard of no run on U.S. dollar accounts, despite the run up in gold world wide Canadians have not bought into the ancient belief gold and silver are money and a good insurance policy in time like these.

This is what I had originally believed as well, we're most certainly walking a tight line right now. However, a challenge to the USD will not come over night. Canada's situation is unique over these other nations due to our economic situation with the U.S.

We may very well be caught flatfooted should events take place faster than I see them coming, but I don't think we're planning on being completely ill-prepared. The Bank of Canada's latest presentation on the outlook is pretty revealing in this regard.

Due to Canada's position, we can not challenge the dollar directly, but we may very well be ensuring deals are in place so that when other nations do challenge the dollar we have trade already established with them and on their terms.